Seoul, South Korea – A recent survey conducted by the Federation of SMEs (Federation of Small and Medium Enterprises) has revealed a bleak outlook for South Korea's small businesses. More than half of the surveyed business owners anticipate a further deterioration in their business environment this year compared to the previous one.

The survey, which polled 800 small business owners across various sectors, found that a staggering 95% expect their business conditions to either worsen (55.6%) or remain stagnant (39.4%) in 2025. Only 5% expressed optimism about the future.

Key factors contributing to these pessimistic forecasts include soaring costs, particularly for raw materials and labor, as well as a decline in domestic consumption. The survey revealed that 52.8% of respondents cited rising prices as their biggest challenge, followed by a decrease in sales due to a weak domestic economy (43.1%), increasing debt burdens (36.4%), and difficulties in hiring and retaining employees (35.5%).

Despite these challenges, a majority of small business owners (93.5%) indicated that they are not considering closing down their businesses. This can be attributed to the high prevalence of "survival entrepreneurship," where individuals start businesses as a means of making a living amid limited employment opportunities.

The survey also highlighted the growing reliance of small businesses on online platforms, particularly in the accommodation and food services sector. While 24.6% of businesses reported using online platforms, this figure was significantly higher for accommodation and food services businesses at 40%. On average, online platforms accounted for 35.4% of total sales.

Furthermore, the survey found that a substantial proportion of small businesses (73.8%) have taken out loans for their operations. Of these, 34.9% reported an increase in their debt levels compared to the previous year. The average interest rate for loans taken out by small businesses stood at 4.99%, with a significant portion facing interest rates exceeding 5%.

When asked about the most pressing policy needs, small business owners prioritized financial support (80.8%), market access (9.9%), fostering entrepreneurial small businesses (2.4%), and promoting a culture of cooperation (1.9%).

In terms of policy priorities for the government, respondents called for measures to alleviate the burden of high interest rates (63.4%), address rising labor costs and labor shortages (63%), expand tax deductions for small businesses (29.6%), and mitigate the impact of rising energy costs (28.3%).

Chu Moon-gap, head of the economic policy division at the Federation of SMEs, expressed concern over the prolonged economic downturn caused by a combination of factors such as high inflation, high interest rates, and political instability. He emphasized the urgent need for policies to stimulate domestic demand and reduce interest rates for small businesses.